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member memos

China raw material pricing spikes

2/1/2018

 
​Dear Colleagues --

I have just returned from China. A very interesting trip. A separate report will follow.
This note regards recent spiking in raw material prices from China, specifically vitamin C, B vitamins and certain amino acids. ...
​Here is the update:

We continue to hear from members that they are seeing and are being affected by these price spikes. Why is this happening? We made numerous inquiries while in China and heard different reasons including:
  1. Knock-on effect of the Chinese government shutdown of 100s of infant formula manufacturers and secondary enforcement against ingredient suppliers of nutrients to infant formula producers.

  2. A thinning out of state-owned enterprises in this sector. Smaller, unproductive companies are being defunded, e.g., reallocation of state resources into the sector.

  3. Pollution controls in China causing energy cost spiking resulting in higher overall production costs hitting the medium and smaller companies harder who have less resource to absorb these costs. [Indeed, the skies in Beijing were blue for one week -- attributed to shut-down of coal fired plants and massive installation of natural gas lines into homes and businesses in the northern half of China.]

  4. A reset of the global pricing for key nutrients coming from China. If true, this is being done at a high state level. We were told by several that prices have risen sharply and then will settle down and reset at a new but higher average price.
In short, we heard multiple reasons for these price increases. We are continuing to investigate. 

Advice to members: This is real and appears that even if pricing eases in coming months, it will settle at a new, higher, average price and likely there will be fewer suppliers. Continued tightening of global supplies of vitamin C, B vitamins and other select nutrients is to be expected.

We will keep you posted. Please keep us posted on your end so we can calibrate and share information.

Regards,

LDI

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